Software Poses 'All-Time' Risk To Speculative Credit, Deutsche Bank Warns
2 22The software and technology sectors pose one of the all-time great concentration risks to the speculative-grade credit market, according to Deutsche Bank AG analysts. Bloomberg: They comprise $597 billion and $681 billion of the speculative-grade credit universe, or about 14% and 16% respectively, analysts led by Steve Caprio wrote in a Monday note. Speculative debt spans high-yield debt, leveraged loans and US private credit.
That's "a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase," the analysts wrote, with "a potential impact that would rival that of the Energy sector in 2016." Unlike in 2016, pressures would likely first emerge in private credit, business development companies and leveraged loans, with the high-yield market weakening later, the analysts added.
The rapid adoption of artificial intelligence tools risks further weighing down multiples and revenues for software-as-a-service firms, while the US Federal Reserve's hawkish stance since 2022 has pressured cash flows, the analysts wrote. For instance, software payment-in-kind loan usage has risen to 11.3% in BDC portfolios, over 2.5 percentage points higher than the already elevated index average of 8.7%, according to Deutsche. PIK deals typically allow borrowers to pay interest in more debt rather than cash.
2 comments
We will not learn (Score: 5, Insightful)
by Ol Olsoc ( 1175323 ) on Tuesday February 10, 2026 @07:40AM (#65979764)
"PIK deals typically allow borrowers to pay interest in more debt rather than cash."
Reminds me of the economist I was listening to on the radio in 2006 who claimed we were in a new economic era where people would simply use the never ending increase in their home equity to finance their entire lives. Then 2007 arrived. That didn't end well.
I dunno if it new crops of the gullible coming online, or short memories of huge numbers of people, but we simply refuse to learn from our failures, just repeat them.
Deutsche Bank and risk assessment? (Score: 5, Insightful)
by nospam007 ( 722110 ) * ) on Tuesday February 10, 2026 @09:28AM (#65979992)
They have NO IDEA.
This is a conservative, attributable list of Deutsche Bank costs tied directly to risk, controls, compliance, and governance failures over roughly the last 25 years.
These are not trading losses from bad bets, but money burned because risk assessment and control failed.
1999–2004, dot-com and analyst conflict scandals, settlements and compliance costs about 1.4 billion USD.
2008–2017, US mortgage crisis and RMBS mis-selling, DOJ settlement 7.2 billion USD.
2015, LIBOR and interest-rate manipulation, global fines about 2.5 billion USD.
2015–2017, FX manipulation, fines and settlements about 2.0 billion USD.
2017, Russian mirror-trading and AML failures, US and UK penalties about 630 million USD.
2018–2020, Postbank IT integration and control failures, write-downs and remediation about 3.1 billion EUR.
2019, Panama Papers and AML supervisory action, BaFin special monitor and remediation costs estimated 300–500 million EUR.
2019–2022, US AML enforcement and independent monitor, remediation and compliance overhaul about 1.3 billion USD.
Ongoing 2005–2023, litigation reserves tied to risk/control issues, cumulatively over 15 billion EUR set aside across years.
Very conservative total directly tied to risk assessment and control failure, comfortably north of 30 billion USD equivalent.
That’s not “a few bad apples”. That’s systemic mispricing of risk for two decades. Any bank can lose money trading. Only a bank with deep cultural problems loses this much money proving, repeatedly, that it didn’t understand its own risks.